Investments that work

If you have shopped banks lately, it’s no
secret that they are vying for your business. What differentiates one financial institution from another is service. And in the
investment arena, you want a banker that
works to understand your goals and objectives, outfitting your business with suitable
investment products.

“With the current economy, customers are
more cautious about investment selections,”
says Sharon A. Young, vice president, regional manager, treasury management services,
Huntington Bank, Greater Akron/Canton
Region. “It’s important for the banker to
understand customers’ tolerance and to
work within clients’ guidelines.”

Smart Business spoke to Young about
investment options and how owners can
decide which products are best for them.

What short- and long-term investment
options are available for businesses?

Years ago, banks didn’t provide the broad
selection of investment options that are available today. Now, many financial institutions
have investment groups under their umbrellas. Most banks can offer the same products
that investment companies provide. Which
products make the most sense for your business investment needs?

The first step is to discuss investment goals
with your banker and find out what vehicles
can help you reach those objectives. Aside
from certificates of deposit (CDs) and money
market accounts, there are ‘low-maintenance’ products, such as an automated
investment account. With this product, a
business checking account is tied to an
investment vehicle, whether eurodollar or
mutual fund investments. Essentially, these
investments work for you overnight — they
manage themselves. You never have to move
money from a business checking account to
an investment account, or vice versa. Also,
investment dollars are available immediately
in the checking account and updated daily.
Checks can be paid against that checking
account. These accounts are often referred
to as sweep accounts.

The Certificate of Deposit Account Registry
Service (CDARS) is a program available for
business clients that want security on investments that exceed the FDIC insurance limit of $100,000. Deposits are spread among
banks that participate in the program, allowing a business to protect all funds while
working through one financial institution.

How do you determine risk tolerance?

Engage in an open, honest discussion with
your banker about how much risk you are
comfortable taking. What are you willing to
lose? There is more risk associated with
investment products that carry a higher interest rate. Or, would you prefer to accept a
lower interest rate in return for greater financial security? How long do you want to tie up
the investment? Because these investment
products are tied to your business, most
clients approach their risk more conservatively than they might a personal investment.
Products are designed with this in mind.

What should businesses remember when trying a new product?

First, understand how the product works,
how you can track its performance, and what
your responsibilities will be in terms of managing the account. With the automated
investment account described earlier, there is absolutely no ‘work’ involved to shift money
or oversee the account. Also, tell your banker
that you’re interested in learning about different products. Though a responsible
banker who is in tune with your business
needs will probably come to you with this
information first. Finally, understand that no
matter what decision you make, you can
always change your mind later. While some
products do have time caps (such as CDs),
none of the investment products banks offer
are lifelong commitments.

How can you identify a trusted adviser?

First ask these questions: Do you meet with
your banker on a regular basis? Does the
banker update you on options that are available today and products that might suit your
needs as those needs change? Banks, for the
most part, carry the same products. Customer service is what differentiates one
financial institution from another. Still, business owners have a tough time discussing
investments and financial goals. These are
personal matters. That’s why a trusting bank
relationship is critical — and relationship is
really the key word. You should feel like your
banker understands your business, investment objectives, risk tolerance and is always
looking out for your best interests. The ultimate risk you take is sticking with a banker
who pushes a product that doesn’t feel comfortable to you or who seems more focused
on ‘sales’ than service.

How do you identify a ‘relationship’ banker?

Referrals are valuable, and it’s a good idea
to discuss banks with your attorney, accountant and other trusted advisers. Talk to
friends, clients and peers as well. Is there a
banker in the news who is receiving positive
press? Of course, don’t base your decision
completely on what you read. When meeting
with a banker, conduct the meeting as if you
were interviewing for a position in your own
company. Because ultimately, you are partnering with an adviser to help provide you
with more information so you can make educated investment decisions.